6 Ways Social Security Recipients Can Avoid Financial Ruin With High Inflation

Social Security benefits are designed as a safety net, intended to replace approximately 70% of people’s pre-retirement income, but not all of it. Yet some people find themselves in the position to rely largely, or solely, on this income in retirement. 

A limited income makes inflation hit even harder when you wind up paying more for the same goods and services.

While the inflation rate has cooled from its record high during the pandemic, many of those higher prices are here to stay. What is a retiree living on Social Security to do to stave off financial ruin in the face of high inflation?

The Social Security Administration (SSA) tries to keep up with inflation by providing an annual cost of living adjustment (COLA) to eligible recipients. This amount varies from year to year, depending on a variety of factors. For example, in 2017, it only increased by 0.3%, but in 2023, to help support the steep inflation rate, it rose by 8.7%. 

When possible, try not to count on this extra amount but put it toward an emergency fund or into retirement accounts instead.

One of the biggest expenses that retirees face is unexpected healthcare costs. While you may not be able to plan for health crises you don’t see coming, make sure you have your health insurance dialed in, and don’t leave any gaps. That means being up to date on exactly when you qualify for Medicare, which parts you need and consider adding on private long-term care insurance before you have cause to need it. You might also consider a health savings account (HSA), which confers tax benefits and lets you save for medical and healthcare costs. Do not leave this to chance.

High inflation reduces the earning power of your dollars, but so does holding interest-earning debt. The more debt you hold, the more you may struggle to get ahead of the rising costs of living. Even if you can’t pay significantly on all your debts, be sure to pay off the highest-interest ones, such as credit cards and some loans. And only use your credit card when you know you can pay off the balance immediately.

If you live in a state with a higher-than-normal cost of living already, such as California, Hawaii or Massachusetts, to name a few, you’re already at a disadvantage. Consider relocating to a state with a lower cost of living and see your retirement dollars go vastly further, allowing you a buffer against inflation

Whatever kinds of investments you have, from tax-advantaged retirement accounts (such as 401(k) plans or IRAs) to stocks or real estate, a portfolio that remains untouched over time will probably not keep up with inflation. You want to be sure that whoever is managing your portfolio helps you continually reassess and rebalance it. This way, you can move your money out of low-performing investments into ones that are bringing you bigger gains.

Annuities are financial products that you pay into over time and that guarantee you a financial payout, typically in a monthly sum, at a certain point in time.

While investing in an annuity is typically something that takes time, so you can’t necessarily just start one when you’re already in financial hardship, it’s a good thing for people to consider well before they reach retirement.